Analysts Conflict on Crude Market Outlook as Prices Rebound Following Trump Tariffs

Friday August 2, 2019

U.S. crude prices bounced back on Friday after suffering the worst trading day in over four years, with West Texas Intermediate gaining $1.71, or 3.2 percent, to settle at $55.66 per barrel.

The gains, coming after the massive selloff caused by U.S. President Donald Trump vowing to impose more tariffs on imports from China, were explained by Ryan Fitzmaurice, commodities strategist for RoboResearch, who said in a note, "The market is still digesting the impact of the tariffs on oil markets, but given China has been taking very little U.S. crude year-to-date, we see little scope for the tariffs to directly impact market fundamentals.

"In fact, oil markets had been under pressure even prior to [Trump's] tweet despite bullish fundamental inputs this week, given the rapidly weakening global economic data and a surging U.S. dollar."

Brian Stutland, chief investment officer at Equity Armor Investment, told CNBC that oil rebounded on Friday because "cooler heads are prevailing a bit: when you look at the demand picture, we're not collapsing to negative GDP growth globally, so I think the demand picture is still there enough to support oil...and I expect to hold the low $50 area."

Anthony Grisanti, president and founder of GRZ Energy, opined, "I would say oil could give back about $58 dollars [due to weaker demand], but it's certainly not going to go above $62 or $63 this year without some major supply disruption."

Short-term analytics aside, the presumption that the world is producing too much oil for a market that is rapidly weakening was challenged in spectacular fashion on Friday by Pavel Molchjanov, equity research analyst at Raymond James: he told CNBC that "We have an under supplied global oil market right now, to the tune of 1 million barrels per day, so global inventories in the course in 2019 are poised to shrink by over 300 million barrels - that alone is a lot.

"In 2020, U.S. production growth is likely to slow by half because the drilling activity has been declining in recent months....because the price is too low to bring it out; inventories will continue to shrink over the next 12 months."

To demonstrate just how divided crude analysts are in their outlook, Molchjanov's comments need only be compared to a statement released on Friday by Bank Of America Merill Lynch: its analysts said in a note that "Global oil consumption growth is running at the weakest levels in nearly a decade ... Protectionism has taken a big toll on global industrial activity; we estimate that the latest round of U.S. tariffs on China could weaken global oil demand by an additional 250 to 500,000 barrels per day."